Like many attendees, I found Abu Dhabi Sustainability Week (ADSW) generated renewed inspiration and better ideas about building a sustainable future.
Unfortunately, after conferences end, like New Year’s resolutions, our excitement can quickly fade as we return to daily routines and obligations. However, our global challenges, and the opportunities they generate, require more consistent dedication; or as this year’s ADSW challenged us “How are you contributing to a decade of action?”
There are three interconnected areas for GCC families– their business, their different generations, and their portfolio – where the energy from ADSW can become meaningful action.
Many families are assessing and preparing their own businesses for the implications of climate change - both physical and transition risks.
Increasingly visible and severe, every business faces physical risks due to both event-driven or long-term shifts in climate patterns. The chance, and consequences, of any particular risk and impact will vary by sector, company, and location.
Moreover, with growing public sentiment, countries and companies are being expected to take more action, and faster, to address their contribution to climate change and reduce their carbon emissions. This creates the corollary of transition risks, or the financial risks which could result as economy shifts leaving unprepared companies stranded. As heard in several “Work & Invest” panels, multinational corporations are seeking to transition and transform to be viable in a future low-carbon economy.
Another area of discussion is whether family assets, sometimes long-held and cherished, will continue to maintain the income streams or attractive valuations in the coming years. Moreover, whether younger generations have the same appetite for their family name and legacy to be associated with carbon intensive assets.
These are not always easy conversations. But helping to establish a clear family business vision and strategy, as well as knowledge of options, can ensure decisions are made consciously rather than by default or at a distressed moment. Conversations about existing businesses provide opportunities to diversify or augment family portfolio into new sectors too. Again, ADSW showcased many of these disruptive innovations ranging from circular economy to sustainable fashion, food, or cities, that could be valuable to family businesses in related sectors.
Secondly, families can benefit from the enthusiasm of their younger generations around sustainability. As well, their involvement can be a bridge to prepare them for forthcoming intergenerational wealth transfer.
Younger generations, recognising they will probably be the most affected in the future by a failure to address climate breakdown, are becoming the advocates for making changes now.
We recently conducted research into how to enable Smarter Succession in intergenerational wealth. We found in 56% of families it is the younger generations who are leading their families on sustainability matters. In fact, for GCC families this is slightly higher at 59%.
We are seeing these “younger” generations, who may be in their 30s, 40s and 50s, take a more vocal and active role in management of family wealth and businesses. This is valuable as our research shows nearly half of GCC families are concerned that their children will take greater risks when they become responsible for the family wealth. Rather than exclude them, involving them earlier with the right space and boundaries can build trust and readiness to inherit wealth and carry on the family name when the time does come.
Finally, families might also need to think on how to position their investment portfolios given the volatile markets and to be more sustainable.
Throughout the third theme of “Work & Invest” and during Abu Dhabi Sustainable Finance Forum we heard a range of distinguished institutional, sovereign, and financial players make the case for sustainability in investment portfolios. So while I don’t need to repeat their counsel, I would encourage those who missed those sessions to review them.
Sometimes investors struggle to be confident to effectively change their portfolios. In those cases, it can help to focus on three activities - education, articulation, and execution.
Education starts with investors increasing their understanding when it comes to different investment approaches, and their implications, as well as what the evidence and research shows. In the area of sustainable and impact investing, we´re proud to have supported the Investing for Global Impact report, which surveyed over 300 leading families and family offices from 41 countries about their sustainable investing practices. Amongst a range of unique insights, most importantly we found that average portfolio allocation to sustainable investing is set to almost double in the next five years.
It is also important that families or organisations articulate their values and beliefs for their investments. This provides the compass point for forthcoming changes. This usually requires a deeper discussion into what they want to stand for, to achieve with their portfolio, and want their legacy to be. This conversation can bridge generations, which can be particularly powerful.
Another important activity for investors to take into account is execution. This means identifying potential investments that fit their investment objectives and sustainability aims.
Markets and the world this year continue to be challenged by the physical and economic dynamics of the pandemic. However, as ADSW reminded us, climate breakdown has returned to the agenda for governments in stimulus plans and with forthcoming COP26 this year.
Therefore, families, taking action now across these three areas are likely to be better positioned to enhance not only their wealth and legacy, but contribute in the coming decades to a more sustainable and inclusive world.
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By Damian Payiatakis / Damian Payiatakis, Head of Sustainable and Impact Investing, Barclays